Microsoft: Windows XP Sales Will Fade In 2008 as Vista Takes Hold

Despite signs that businesses and consumers still want Windows XP, Microsoft officials said sales of Vista's predecessor operating system will shrink to just 15% of the company's total OS shipments as soon as the next fiscal year.

On a conference call with financial analysts Thursday following the release of Microsoft's third-quarter results, officials at the software maker said they expect that Windows Vista will account for 85% of operating system sales in fiscal 2008 compared with 15% for Windows XP.

For its full fiscal year 2008, which begins on July 1, the company is forecasting total revenue of between $56.5 billion and $57.5 billion and earnings per share of $1.68 to $1.72. "Our fiscal '08 guidance numbers assume a unit mix of 85% Windows Vista, and 15% Windows XP," said Microsoft CFO Chris Liddell, according to a transcript of the conference call. That would represent a healthy sales mix for Microsoft, which has invested billions developing Windows Vista and bringing the product to market. Beyond the direct sales revenue it generates, the operating system is the user's desktop gateway to numerous third-party marketing programs and product offerings that generate additional cash for Microsoft.

But despite Windows Vista's advanced security features and slick interface, there are indications that businesses and consumers may be slow to embrace it due to concerns about application compatibility and steep hardware requirements. Thirty percent of businesses surveyed by InformationWeek said they have no plans to upgrade to Windows Vista. Meanwhile, lingering consumer demand for Windows XP recently forced computer maker Dell to reintroduce the older Microsoft operating system as an option on its home systems.

On Thursday's conference call, one analyst was skeptical about Microsoft's OS sales mix forecast. "What is the confidence level at this early point in the cycle, with the 85% Vista, 15% XP assumption? What we hear from our surveys is that a lot of the enterprises seem to want to do an implementation of Vista in [calendar year] 2008," said Merrill Lynch analyst Kash Rangan.

Liddell conceded that the prediction is not a sure bet. "It is early days, so the standard deviation is quite high," said Liddell. He noted, however, that Microsoft's fiscal year 2008 includes the first six months of calendar year 2008. "So to the extent that some people are on the sidelines waiting [to upgrade to Vista], they may well be looking at a position of early next year."